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State subsidies for battery cell production: For information on risks and side effects, please do not consult

Eric HeymannMaximilian Volmer

Not least because they fear that the trend towards electromobility may cause losses in value added and job cuts in Germany, policymakers are debating subsidies for national battery cell production.

Not least because they fear that the trend towards electromobility may cause losses in value added and job cuts in Germany, policymakers are debating subsidies for national battery cell production. From a regulatory perspective, supporting local manufacturing would be dubious and comes with high economic risks. On princi-ple, German automakers ought to be better judges than policymakers, both with regard to the indispensability of battery cell manufacturing in Germany and its long-term profitability. The state is not needed, at least not as a source of subsidies. [more]

Merkel’s cabinet in consultation with the PMs of the 16 federal states agreed to partially lift containment measures but curbing health risks clearly dominated economic risks of a longer shutdown. The decisions taken will be reviewed on a bi-weekly basis with the next meeting of political leaders on April 30. A European coordination of (national) exit strategies is important for Germany given its strong economic interlinkages with other member states. [more]

The coronavirus pandemic has struck the German mechanical engineering sector at an already difficult time. Since 2019 at the latest, mechanical engineering firms have been feeling the effects of a realignment in the industry, particularly as German automobile manufacturers shift towards electric mobility. On top of that, there was the possibility of unusual expenses due to the potential discontinuation of deliveries from China amid ongoing trade conflicts. Production may decline by 25% or more in 2020 as a result of the coronavirus. [more]

It’s quite grotesque indeed: while Germany is admired by other countries for its handling of the corona crisis, we are once again – in typical German style – chewing over everything real or imagined that doesn’t work or didn’t work even before the crisis. [more]

Due to the COVID-19 pandemic, uncertainties about the future development of German real estate prices have increased considerably. A global flight to safety should drive prices for residential properties up. In the short-run, the downturn in economic activity, particularly during the first half of 2020, and considerable uncertainty about the future as well as the psychological burden are likely to result in price declines. [more]

We identify the impact of negative rates on household portfolios in Germany. Real returns on cash and deposits stood at -1.2% in Q1 2019. Due to that, Germans lost around EUR 150 in real terms in 2019 per person, compared to the 1991-2014 average. The aggregate loss including claims on insurance for a representative household was roughly EUR 540 per year. The richest 10% of Germans hold 60% of the financial wealth and probably have significantly higher losses. In 2019, net lending to private households in Germany reached a new record of EUR 59.5 bn (+4.8% yoy). Mortgages saw a record increase of EUR 53 bn (5.3% yoy). Deposits rose by EUR 41.1 bn in the seasonally strong final quarter. In 2020, mortgage growth is likely to slump, even stagnate. The corona virus pandemic will probably lead to a reduction in household income and possibly to bottlenecks in the issuance of building permits. [more]

Fighting the corona crisis: Whatever it takes. The government’s support measures so far include greater access for firms to short-time allowance, tax moratorium and the potential provision of state guarantees of up to EUR 460 bn. We expect the government to come up with additional fiscal stimulus measures soon. The budget balance could post a deficit of 3.5% of GDP in 2020/21. (Also in this issue: KfW programmes to support corporate Germany – A primer. Corporate lending in a corona recession: Development banks as an anchor of stability?) [more]

Corona recession – depth probably close to 2009 slump. Within days lock-down measures and (temporary) factory closures have reached a level that suggests a far bigger H1 contraction than previously thought. In our new baseline scenario we expect GDP to decline between 4% and 5% in 2020, notwithstanding a recovery in H2, as – in contrast to 2009 – the service sector will be hard hit, too. (Also in this issue: the German government's support measures, labour market, industrial recession, auto industry, corporate lending, the view from Berlin) [more]

In 2019, German carmakers produced significantly more cars in China than at home. China remains by far the most important foreign production site for the German auto industry. While foreign production is likely to rise further, recent development of domestic production gives cause for concern. [more]

The key message: If the Berlin rent cap is constitutional, the situation for investors will change dramatically. The realignment of housing policy in Berlin and the rent cap represent a radical attempt to sideline market-based mechanisms. We believe the economic supercycle in Berlin will continue undiminished and Berlin remains an attractive market for long-term oriented investors. The negative effects of the rent cap on the housing market are likely to emerge clearly in the long run. [more]

German retail clients have shown relatively little interest in passive investment alternatives, compared to traditional mutual funds. Robo-advisors, which primarily invest in ETFs, have seen the number of their clients and AuM grow. German robo-advisors could manage about EUR 25-35 bn in 2025, up from EUR 4 bn today. Their pioneer clients are largely male, middle-aged and high-income. They value full control and autonomy in their financial decisions and deal with financial matters mostly online. Still, they visit bank branches quite frequently. [more]

After very weak December data a small drop in Q4 GDP seems likely. Looking forward, the coronavirus provides a substantial risk for the expected global recovery, as hopes were pinned on an improvement of the Chinese economy. We assume that the corona outbreak will shave off 0.2pp of Germany's Q1 GDP, making a technical recession quite probable during the winter half. [more]

The shift towards alternative propulsion technologies, such as e-mobility, is currently the biggest challenge for the global auto industry. So far, this structural change is driven mainly by government regulation and not so much by market forces. At the moment, electric vehicles only have significant market shares if they are heavily subsidised. While e-cars can help to reduce carbon emissions in the EU, the favourable climate effect will be smaller than many supporters of electric mobility expect. A higher market share of e-cars will lead to manageable job losses in the German auto industry; however, local factors are key for value added. [more]